Iceland

Iceland: Parliament passes legislation amending to interest deduction

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The parliament has passed legislation amending article 57(b) of the Income Tax Act No. 90/2003 on 1st June 2017. According to the previous article 57 (b) of the Income Tax Law No 90 /, which entered into force on 1 January 2017, the taxpayer’s deduction of interest on loans from related parties shall be limited to 30% of the taxpayer’s earnings before interest, taxes, depreciation and amortization (EBITDA), provided that none of the three exceptions provided for in Article 57 (b) (3) apply. The amending legislation 2003 of 1st June 2017 eliminates the exception (B) provided for in Article 57 (b) (3), by which the article now applies equally to all loans from related parties, irrespective of where the creditor is resident for tax purposes. The amendment shall enter into force on 1st January 2018.

U.S. and Iceland sign an agreement on the exchange of CbC reports

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According to the IRS announcement on its website, the competent authorities of the U.S. and Iceland have concluded an arrangement on the exchange of Country-by-Country Reports. The competent authority arrangement (CAA) for exchange of country-by-country reports is on the basis of a double tax convention (DTC). The agreement was signed on 5 May 2017.

Under the arrangement, the first fiscal year for which the U.S. and Iceland intend to exchange CbC reports is the fiscal year of MNE Groups commencing on or after January 1, 2016. The CbC report is intended to be exchanged by the Competent Authorities of the two countries as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. CbC reports with respect to fiscal years of MNE Groups commencing on or after January 1, 2017 are intended to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE Group to which the CbC report relates.

The Competent Authorities intend to exchange the CbC Reports automatically through a common schema in Extensible Markup Language (XML).

Iceland signs new multilateral convention to prevent tax avoidance

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Iceland has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”). On 7 June 2017, over 70 Ministers and other high-level representatives participated in the signing ceremony at Paris.

The Convention is a key outcome of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project, which aims to offers concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide.

The Convention enables all signatories, inter alia, to meet treaty-related minimum standards that were agreed as part of the Final BEPS package, including the minimum standard for the prevention of treaty abuse under Action 6. The Convention will enter into force after signatories have completed their domestic requirements and deposited their instruments of ratification with the OECD.

Japan and Iceland agree on a DTA

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On 29 May 2017, the Japanese Ministry of Finance announced that the Government of Japan and the Government of Iceland have agreed in principle on the tax convention between Japan and Iceland.

This new agreement will be signed after the necessary internal procedures have been completed by each of the two governments. Thereafter, the new Convention will enter into force after the completion of the approval procedure in both countries.

Iceland issues revised bill for the CbCR

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Regulation no. 1166/2016 on the documentation for CbCR (Country-by-Country Reporting) has been further revised by regulation no. 245/2017 on 24 March 2017. The revised regulation is effective on or after 24 March 2017. The revision incorporates two extra adjustments:

  • According to Regulation no.245/2017, Country-by-Country Reporting should include the applicable information on an aggregate basis for all entities within each country. In the previous regulation no. 1166/2016, this information was requested for each entity instead of collectively for each country.
  • The Country-by-Country report must be filed with the Directorate of Internal Revenue before the end of each calendar year or by the end of the financial year. In the previous regulation no. 1166/2016, the CbCR was to be filed no later than 12 months after the close of the group’s financial year.

 

Negotiations for DTA between Japan and Iceland

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The Government of Japan and the Government of the Republic of Iceland will initiate negotiations for a tax convention between the two countries.

The first round of negotiations will take place on May 17 in Tokyo. Further details of this treaty will be reported later.

Iceland presents fiscal plan for 2018 to 2020

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The Minister of Finance and Economic Affairs announced fiscal plan for 2018 to 2020 to reduce the standard VAT rate from 24% to 22.5%. This plan will be effective from 1st 2019.